Ramaswami Kalidas
VP & Company Secretary
Reliance Power Ltd
 New
Act
incubation.
after
prolonged
period
of
 Shift
in emphasis in legislation to
subordinate law. Very unusual in a NonRevenue Statute.
 Possibility
of adhocism due to convenience
of tweaking Rules without parliamentary
sanction
Glaring Errors

Section 2(47) – Definition of Independent
Director- To be read with Section 149(5)
No definition in Section 149(5), to be found in
Section 149(6) !.

Section 135 – Non –Existent Definition of CSRDraft Rules on CSR- CSR -- As defined in
Section 135.
Anomaly since corrected –Rule 2 now defines
CSR inclusively

Section 165- Number of DirectorshipsSub section (2) to Section 165 :“Subject to provisions of Sub-section (1), the
members of a company, may by special
resolution, specify any lesser number of
Companies in which a director of a company
may act as Directors”
“S” after director should go .Queen’s
Language !!
Definition of “courier’-Rule 35(5) in Chapter II
Means”a document sent through a courier which
provides proof of delivery”- Hilarious and
Incredible!!!

Section 181 – Contribution to bona fide and
charitable funds
Members’ prior approval needed for contributing
to such funds, amounts in excess of 5% of
average net profits of last three years.
Proviso silent on whether prior approval shall be
ordinary resolution or special resolution.
View can be taken that ordinary Resolution shall
suffice.
Construction Aberrations
194 – Prohibition of forward dealings
in securities of Company
 Section
Sub – section (1)- Directors or Key Managerial
Personnel restricted from forward dealing in
securities of Company, its Holding Company,
Subsidiary or Associate Company
Explanation in Section speaks differentlyApplicability to whole time Directors or KMPs
only.
Non-Executive Directors not covered.
“Relevant Securities” refers to shares/
debentures of Company, it’s Holding
Company and Subsidiary Company.
No reference to “Associate Companies”

Section 195- Prohibition on insider trading
Applicability to every company leading to
inference that it covers unlisted public/private
companies as well.
• How can Section apply to unlisted Entities?
•
•
Section applies to persons
Directors or KMPs of Company
including
Applicability not restricted only to above persons.
Inference- Applies to all. Other types of
persons covered to be specified.
Definition of Price Sensitive InformationPartial lift off from Insider Trading Regulations
Explanation in SEBI Regulations omitted from
definition.
Inexplicable Exclusion as Explanation identifies
various events which are price sensitive !
Section 177 and 188- Related Party
Transactions

Redundancy in procedure

Apparent disconnect between Section 177
and 188

Section 177 (4)(iv)
Audit Committee to approve every related
party transaction and subsequent
modifications in terms . SEBI circular
clarifies that approval represents prior
approval
Section 188- Board authorisation for types of
contracts/arrangements specified
Specified under (a) to (g) of 188(1)
Non- Applicability if :
(a) Transaction in the ordinary course of
business.
(b) Is on arms’ length basis.
Shareholders’ approval when
• Where paid up capital exceeds Rs. 10 crore or
•
•
•
•
•
Value of transaction exceeds individually or
collectively 25% of turnover or 10% of Net
Worth.
For sale of property where value exceeds 10%
of Net worth
For provision of services –where value exceeds
10% of Net worth.
For leasing where value exceeds 10% of
turnover/Net worth.
Approval also for :
(a) For appointment of RP to any place of profit
in Company, Subsidiary or AssociateRemuneration exceeds Rs2.5 lacs per month.
(b) For underwriting Agreements – where
Remuneration exceeds 1% of net worth.
• Special Resolution not to involve Member who
is RP.
• will lead to procedural issues during voting.
Divergence between Section 164 and
Section 167
Disqualification of Directors and vacation of
office
Section 164- Disqualification for holding office
upon conviction for any offence involving
punishment by imprisonment- six months or more
and period of five years has not elapsed from
conviction.
Disqualification to be held in abeyance during
pendency of appeal and even seven days after
adjudication of Appeal.
Section 167- Vacation of office once there is
conviction. Will apply even if there is appeal in
pendency.
Above contradiction also exists in 1956 Act in
Sections 267, 274 and 283.
Section 184- Disclosure of Interest by Director
Disclosure applies:Per sub-section(1)-Against interest in any company
bodies corporate ,firms and AO Individuals.
Per Sub-Section(2)(a) Where contract is with body corporate in
which
Director by himself or with another holds
directly or indirectly 2% or more of shareholding
in other company or
(b) If he is promoter, manager, CEO of other
body corporatey or
(c) Where contract is with firm or other entity of
which Director is partner, owner or member as
the case may be
•
Director to disclose interest and
not participate in meeting.
Section 184(5)
Nothing in this Section shall apply:
Clause (b) Except where interest is by way of
shareholding of 2% or more in other company
Inference: No disclosure required except in case
of shareholding of 2% or more.
Illogical conclusion?
Grey Areas galore- CSR Rules
Issued u/s 135 and 469(2)
 Section 469(4)ordains that Rules notified be
placed in parliament.
 Rule 2(f) defines Net profit and has two
significant Exclusions.
 Section 135 –Explanation directs determination
of Net profit per Section 198.Exclusions in Rule
2(f) not covered u/s 135.Can Rules have exclusions
not covered under Mother law


Settled principle-Sub-ordinate law cannot
Override mother statute
•
Rule 5 clarifies that private company need
not have ID in Committee.
•
Section 135 speaks about Requirement of
ID for Every Company covered.
How Can Rules make an Exclusion.
•
CSR Rules issued under Section 469.
•
Power to Exclude any class of companies,
in public interest exercisable only u/s 462 .
• As per Section 462 notification draft to be
placed in parliament and to be approved
before issue.
• For Balance of convenience-Rule issued u/s
469.
Raises doubt on sustainability of Rule
 No
time frame prescribed for setting up the
Committees. Need appears immediate .
 PS: Anomaly since corrected by Circular dated
June 12,14.

No structure suggested for composition of Stake
holders Committee.

Chairman to be non-executive and composition
to be decided by Board.

Paradox-considering objectives of Committee.
 Section
179 empowers Board to issue
Securities including Debentures whether in
India or out side. No fetter on Board power
apparently.
 Rule
14(2) requires previous approval of
members by special resolution even for
private placement of Debentures.
 Rule
contains stipulations not contemplated
by Section.

Circular indicates incorrectly that Section
185 prohibits:

Issue of guarantee by Holding Company to
Subsidiary.

Circular also states that exemption will
apply if loans are exclusively used for the
principal business activities
•
•Section 186 nowhere contemplates that
guarantees issued by holding company should
be used by Subsidiary for its principal business
purposes.
• Circular travels beyond both Sections 185 and
186.
 Rule
20 in Chapter VII provides for e-voting
platform for listed and unlisted Companies with
1000 members or more.
 Evoting
requirement since extended to
December 31,2014 by clarification dated June
17,2014.
 SEBI
circular directs that facility of postal ballot
be provided to those who do not have access to
e-voting.
Section 107 states that where voting is through
e-platform or when poll demanded voting by
show of hands not possible.
What will shareholders do at AGMsSurely not twiddle their thumbs !!!.
PS-Above provision has been held in abeyance
due to clarification dated June,17,2014
 Section
2(76)Provides definition of Related
party.
 Rule
2 in Chapter XII Restricts Definition of
RP.
 Folly realized and definition omitted in
Gazette Copy.
 Are Rules analogous to a household grocery
list!
 Rule
6 in Chapter IV provides that duplicates after
approval by Board shall be issued within 15 days
of submission of complete documents.
 Power now delegatable to Committee of
Directors
 Rule also provides for signature on Certificates by
CS only where Company has one.
 Requirement
to file MGT.10 for reporting
either increase or decrease of 2% or more in
promoters/top ten holding.
 Redundancy
in procedure and steep
increase in cost of compliance.